Digging deep: How the R&D Tax Credit can revolutionize the oil & gas industry

Rizwan Virani, alliantgroup

Oil and gas are amongst the most widely used commodities in the world. Given how commonplace they are, most consumers who utilize them to run their vehicles and warm their homes, are unaware of how the processes that bring them fuel are constantly being improved.

For companies in the industry, these innovations are at the forefront of how they stay competitive. However, what some companies may not be aware of is that the federal and many state governments seek to assist them in stimulating innovation through the Research and Development (R&D) Tax Credit. Oil and Gas companies are eligible for this lucrative incentive, currently valued at almost 10 billion dollars, for work activities that are often already being performed.

The R&D tax credit was introduced by Congress in the 1980s and was primarily for biomedical and technological research. However, since that time, the definition of what qualifies as R&D has expanded significantly and now encompasses many industries, including oil and gas. As the former Senior Tax Counsel to the Senate Finance Committee and alliantgroup National Managing Director, Dean Zerbe says, “Oil and gas companies in many ways are the backbone of America, as they provide the most essential resources to the countless other enterprises across the globe. Technology relating to oil is some of the fastest moving and most intellectually complex, so these companies are natural fits for the Research and Development Tax Credit.”

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Activities that make firms eligible for the credit include, offshore structure design with respect to generator and compressor modules, process modules, quarters, equipment skids, jackets, helidecks, development and testing of plug and abandonment solutions, development and testing of turnaround, and shutdown services. Plant design with respect to pressurization, safety, chemical segregation, and environmental and pollution control systems also qualify. Work done with wastewater treatment solutions, refining issues, drill design and improvement, containment systems, fuel combustion testing, and environmental testing and remediation also can be counted towards procuring the R&D Credit.

So if these credits and deductions are so valuable, are available for activities many companies are already doing, and the government wants companies to use them, then why do so many choose not to take advantage of the credits? The most common reason is that businesses erroneously believe they don’t qualify.  Also, many businesses believe the process of obtaining tax credits and deductions is too complicated for them to handle on their own. However, as Senator John Cornyn recently said, a business “doesn’t need an army of accountants to take advantage of tax incentives,” as specialty tax firms like alliantgroup offer the assistance necessary to secure these benefits.

Activities occurring every day in the oil and gas industry deserve significant tax benefits. Organizations whose activities qualify should speak with their financial advisors as soon as possible to ensure they receive the maximum benefits available to grow their businesses in 2013.

About the author
Rizwan Virani, alliantgroupRizwan Virani is the managing director of alliantgroup, a specialty tax firm and that has helped companies claim more than $2 billion in tax incentives.

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